Credit Card Charge-Offs Will Exceed $100 Billion
It is reported that credit card charge-offs will reach the $100 billion mark by the end of 2009. The net effect of this will be to further exacerbate our current financial mess and push many more American consumers into financial ruin. A charge-off is defined as payments being over 120 days late or unable to recover.
The Cause
Far too many Americans living beyond their means. In this ‘I want it now whether I can afford it or not’ climate of consumer behavior, bad credit card debt will be the the next thunderous blow to strike the U.S. economy. It’s not like we didn’t see this coming, but the day of reckoning will soon be upon us.
It is reported that never before in the history of the United States has there been such a large amount of credit card defaults. When you couple this in with the existing mortgage crisis it is easy to see that the pressure on the U.S. economy is not going to abate any time soon.
Banks and credit issuers including Citibank, Discover Card, J.P. Morgan Chase and American Express are all seeing consecutive quarterly losses in their financial statements. I think it is safe to say that will see more mergers in the financial services sector. I wouldn’t be at all surprised to see more government bailouts on the horizon either.
Many individuals were in the business of transferring credit card balances to the latest 0% APR introductory offer. Of course, when the intro offer expired they would have to transfer that debt to yet another 0% interest rate card. It looks like those offers will be drying up. Write-offs and charge-offs have become far too frequent and no lender wants to be the one stuck holding the bag.
Who Pays
So who will ultimately pay for all of this? Once again it looks like we will all pay for this in one form or another. For the responsible consumer that pays their bills on time they will pay in the form of higher interest rates. For the the people that live within their means and don’t owe any credit card debt you may be on the hook in the same way as you are with the $700 billion dollar bailout of the mortgage industry.
The way credit card companies mitigate risk is to gradually increase interest rates on those individuals that pose the biggest credit risk while trying to keep the rates of customers that pose less risk low so they can continue to milk the oh-so lucrative cash cow without losing their business. I fear that that this checks and balances system isn’t going to quite cover it now. We will all pay for this in one way or another.
Related Information:
- Capital One Reports Increased Charge-offs Capital One credit cards have seen a sharp increase in the number of charge-offs....
- Bank of America Posts a $1 Billion Quarterly Loss Bank of America reports a $1 billion quarterly loss....
- American Express Wants $3.5 Billion From The U.S. Government American Express is looking for help and the taxpayers are where they turned....
- The Differences Between Charge Cards, Credit Cards and Debit Cards A look at how credit cards, charge cards and debit cards are different....